Former Sky chairman James Murdoch was spared no criticism over his handling of the phone hacking scandal as Ofcom ruled the company could keep their broadcasting licence.

While Ofcom said there was no evidence that Mr Murdoch knew of wrongdoing at the News of the World or that he was complicit in a cover-up, it hit out at his failure to uncover the problems earlier.

It said: "We consider James Murdoch's conduct, including his failure to initiate action on his own account on a number of occasions, to be both difficult to comprehend and ill-judged."

James Murdoch was criticised in the report

It said that the former chairman's conduct as chief executive of News International repeatedly fell short of the standards expected.

Ofcom said James Murdoch's handling of the phone hacking scandal "raises questions regarding James Murdoch's competence in the handling of these matters and his attitude towards the possibility of wrongdoing in the companies for which he was responsible."

However they said that there were currently no grounds to conclude that his father Rupert Murdoch acted in a way that was inappropriate.

Rupert Murdoch's News Corporation owns a 39% stake in BSkyB. His son James Murdoch was chairman of the broadcaster but stepped down earlier this year in a bid to distance the company from the scandal.

James Murdoch claimed he had become a "lightning rod" for bad publicity. He remains a non-executive director of BSkyB and an executive director at News Corp.

Mr Murdoch apologised for his conduct in a letter to the Culture, Media and Sport Select Committee in March, when he said he should have "asked more questions, requested more documents and taken a more challenging and sceptical view of what I was told".

He had no involvement with News International until the end of 2007, which was almost a year after the sentencing of News of the World's royal editor Clive Goodman and private investigator Glenn Mulcaire for phone hacking.

But after he took over as chief executive, he received an email suggesting that criminal activities were more widespread, although he claimed he failed to read the correspondence fully.

Sky welcomed the licence decision and said Ofcom was right to conclude that it was a fit and proper broadcaster.

It said in a statement: "As a company, we are committed to high standards of governance and we take our regulatory obligations extremely seriously.

"As Ofcom acknowledges, our track record of compliance in broadcasting is good."

Ofcom said it was satisfied that it had considered all the relevant evidence but would consider any further information as it emerged.

Labour MP Tom Watson told BBC Radio 4's Today programme he was "disappointed" by the finding.

Asked if it was a finding he accepted, the MP for West Bromwich East said: "Yes, of course. I am disappointed by it obviously, but not surprised, but I do think it shows the flaws in Ofcom's methodology, they can't do deep investigations in the way that other organisations can and they also do hedge their bets.

"They say the test can be applied at any point if there is new evidence and they are also critical of James Murdoch when they say his conduct wasn't that becoming of a chairman and chief executive, so they are not entirely cleared by the report."

News Corp welcomed Ofcom's decision but defended James Murdoch, saying he deserved credit for leading Sky to its an outstanding record as a broadcaster.

It said: "We are pleased that Ofcom recognises BSkyB as a fit and proper holder of a broadcast licence and remain proud of both News Corporation's and James Murdoch's distinguished record in facilitating the transformation of Sky into Britain's leading pay television and home communications provider.

"We disagree, however, with certain of the report's statements about James Murdoch's prior actions as an executive and director, which are not at all substantiated by evidence."